Stockbroker Fraud Overview
Stockbroker fraud, which is also known as investment fraud, occurs when an advisor, stockbroker or brokerage firm offers inaccurate, incomplete or biased information designed to enrich the advisor, stockbroker or brokerage firm, and not the interests of the investor. Stock fraud can occur at the company level or can be committed by a single employee, and can range in size financially from multi-million dollar deals to penny stocks.
All stockbrokers and other investment professionals have a legal duty to exercise due care in dealing with the investors they serve. The nature and extent of the duty is based upon state and federal securities laws, on the self-regulatory rules adopted by the National Association of Securities Dealers (NASD) and the New York Stock Exchange (NYSE), and upon the level of competence usually and customarily maintained by stockbrokers in general. When a broker harms an investor by failing to meet that standard of care, the investor may decide to make a claim against the broker and the brokerage firm employing him or her for professional negligence and stock fraud.
Examples of stock fraud practices include:
- Misrepresentation/Omission: Stock fraud involving misrepresentation or omission occurs when risk factors associated with a particular stock are not fully disclosed.
- Unsuitability: Stock fraud unsuitability occurs when a broker pushes undesirable stocks on an investor, often resulting in substantial loss for the client.
- Over-concentration: Stock fraud through over-concentration involves the absence of diversification and the protection that comes with investing in multiple areas.
- Churning: Stock fraud through churning requires a large number of transactions and consists of selling stocks with small gains in order to show a profit.
Broker-related stock fraud can also involve:
- Unauthorized trades
- Failure to place an order
- High pressure sales
Recently, stock fraud investigations have found an enormous amount of insider trading, i.e. brokerages committing stock fraud by selling IPO stocks before the release date to favored clients and friends. Major brokerage firms that have been investigated for such inside trading include Merrill Lynch, Salomon Smith Barney and Credit Suisse First Boston.
The primary element of stock fraud is that the investor's interests are secondary to the financial gain of the broker. Stock fraud can destroy individuals and businesses, and in turn can cause substantial damage to the stock market itself. The Securities Exchange Commission has established guidelines for stockbrokers and advisors to follow to ensure that investment advice is being given fairly and consistently and that stockbrokers are not engaging in stock fraud. However, if you suspect that you have been a victim of stock fraud, contact an experienced stock fraud attorney, as listed on this site, to discuss your case and the litigation options that are available to you. You may be eligible to file an individual lawsuit or become part of a class-action claim.
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